In case of change in profit sharing ratio among partner's in a firms, the Stock Account stood at ₹55,000 in the Balance Sheet of the old firm and at the time of reconstitution, it was observed that Stock A/c was overvalued by 10%. Identify the correct option with respect to treatment of stock account in Revaluation Account.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - Stock A/c will be credited by ₹5,000.
Stock Account stood at ₹55,000
Overvalued = 10%
Let stock at starting = a
Overvalue = a X 10/100
= a/10
a + a/10 = 55,000
(10a + a)/10 = 55,000
11a/10 = 55,000
a = 55,000 x 10/11
= ₹5,000
Since stock is overvalued, its value must be reduced.
Reduction in asset is recorded by crediting the asset account (Stock A/c) and debited to Revaluation A/c.